Neuberger Berman Expects Bidding War for Whole Foods -- Update

Mutual-fund giant Neuberger Berman thinks Amazon.com Inc. may have just kicked off a bidding war for Whole Foods Market Inc.

The retail giant announced plans to buy Whole Foods for $13.7 billion including debt, or $42 a share, Friday, jolting the grocery industry. Shares of Amazon rallied while other grocers plunged in the face of the new competition.

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The market reaction and the deal's price tag has Neuberger speculating a topping bid may arrive for Whole Foods. The investor owns about 2.7% of Whole Foods.

"It's not a big check," Neuberger portfolio manager Charles Kantor said in an interview. "I would be very surprised if this is the final chapter of Whole Foods."

The deal values Whole Foods at roughly 10.5 times its expected 2018 earnings before interest, taxes, depreciation and amortization. The deal comes at 27% over Whole Foods' Thursday closing price, but it is only 18% above its Wednesday close, before the stock sank on rival grocer Kroger Co.'s gloomy earnings report.

Whole Foods declined to comment.

In April, Neuberger Berman sent a letter to Whole Foods' board urging it to review options including a sale or joint venture. The move came a few weeks after activist investor Jana Partners LLC disclosed a nearly 9% stake in Whole Foods and called for a similar review.

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Mr. Kantor said he hopes Whole Foods' board will run a full process to explore other offers should any materialize.

"This is a shot across the bow for the entire retailing landscape," Mr. Kantor said. "Those that have deeper pockets may feel they have to respond for a strategic asset of this ilk."

The entire grocery sector is getting hit hard in the stock market Friday, as are big retailers like Wal-Mart Stores Inc. Wal-Mart was down about 5% at $74.89 midday Friday.

Mr. Kantor, who earlier had speculated Amazon might bid on Whole Foods, said the deal makes sense because it aids Amazon's efforts to break into the grocery business and grows its customer base.

"We thought the Whole Foods' brand would resonate massively with the Amazon customers," he said.

As evidence, Mr. Kantor said his wife, a loyal member of Amazon's Prime service, told him she would "definitely order Whole Foods through Amazon."